Despite a limited injection into natural gas stockpiles over the past week, natgas-related exchange traded funds are weakening as traders anticipate weather conditions to turn and limit demand.
On Friday, the United States Natural Gas Fund (NYSEArca: UNG) fell 2.2% and the iPath Bloomberg Natural Gas Subindex Total Return ETN (NYSEArca: GAZ) dropped 1.0%, with both options testing their support at the 50-day simple moving average. Over the past week, UNG declined 2.7% and GAZ decreased 3.9%.
Meanwhile, traders capitalized on the turning sentiment with inverse or bearish ETFs. For instance, the VelocityShares Daily 3x Inverse Natural Gas ETN (NYSEArca: DGAZ), which seeks to provide the daily inverse 3x or -300% performance of NYMEX natural gas futures, jumped 6.9% on Friday while the ProShares UltraShort Bloomberg Natural Gas (NYSEArca: KOLD), which provides the daily inverse 2x or -200% performance jumped 4.5%.
Meanwhile, Nymex natural gas futures dipped 1.9% to $2.90 per million British thermal units.
Natural gas prices weakened on expectations that cooler weather ahead would diminish natgas demand for electricity generation, reports Alison Sider for the Wall Street Journal.
The natural gas market has surged over the summer on unusually hot weather that bolstered demand for electricity for air conditioning – about 50% of U.S. households utilize natural gas for heating and cooling. However, the weather conditions are expected to change ahead as temperatures ease.
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“We’ve had so much heat hang around the East in particular, that’s really driven up power demand to record levels,” Kent Bayazitoglu, an analyst at Gelber & Associates, told the WSJ. “The weather is finally moderating, and that’s going to cause bigger injections” into storage.
Looking further out, a more temperate winter across most of the continental U.S. could further weigh on natural gas heating demand. According to The Weather Company, winter 2016-17 may be colder in the East but leftover warmth from the recent El Nino may linger in the U.S.
Dr. Todd Crawford, chief meteorologist with The Weather Company, believes New England and Upstate New York may see cooler-than-average December through February weather, but the rest of the lower 48 states could experience mild winter temperatures.
For more information on the natgas market, visit our natural gas category.
United States Natural Gas Fund
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